HOW TO AVOID DOUBLE TAXATION BETWEEN UKRAINE AND ROMANIA

DOUBLE TAXATION BETWEEN UKRAINE AND ROMANIA: WHAT YOU NEED TO KNOW AND HOW TO AVOID IT

When opening a company in Romania, Ukrainian entrepreneurs almost always face the same question: should they pay taxes twice—in Romania and in Ukraine? This is one of the key points of confusion, where mistakes most often arise.

There is no double taxation in the literal sense. The company pays taxes in Romania, but the owner is obligated to account for income in Ukraine. This isn't a matter of double taxation, but rather of aligning the overall tax burden with the requirements of both countries.

If this issue isn't addressed upfront, the consequences become apparent later on: additional assessments, reporting requirements, and the need to restructure the business once it's already operational and generating revenue.

 

WHAT DOES THE ACTUAL WORK SCHEME LOOK LIKE?

A company registered in Romania operates and pays taxes according to local regulations. At this level, issues usually don't arise.

Complexities arise at the ownership level. If the owner remains a tax resident of Ukraine, they remain under Ukrainian jurisdiction and are required to account for and report the company's operating results.

This creates an intersection of two approaches: in Romania, the company is an independent taxpayer, while in Ukraine, it is a source of income for the resident. The tax paid in Romania is taken into account, but does not always fully offset the liability.

If the Ukrainian tax burden is higher, a difference arises that must be paid. This is not a double tax, but rather an equalization of the total liability.

 

 

WHERE ENTREPRENEURS MOST OFTEN MAKE MISTAKES

Problems typically arise not at the start, but later—when the business is already operating, turnover is accumulating, and interactions with tax authorities begin.

The most common mistake is ignoring CFC rules. An entrepreneur opens a company in Romania, pays taxes there, and thinks that's sufficient. The Ukrainian portion is not taken into account. As a result, questions arise after a while: where are the reports, where is the notification, why isn't the income declared?

The second typical situation is a formal approach to reporting. Data is submitted, but without an understanding of the logic. During an audit, discrepancies arise: the numbers are there, but they cannot be explained.

Another common problem is separate accounting without synchronization. Romanian accounting is kept separately from Ukrainian accounting. Over time, data begins to diverge, which leads to questions from the tax authorities.

The timing factor should also be taken into account. The error may not be immediately apparent, but it can surface at the most inopportune moment—during a VAT refund, confirmation of the company's status, or an audit.

 

KIK: NOT A FORMALITY, BUT THE BASIS OF THE ENTIRE STRUCTURE

Controlled foreign companies are the foundation of the entire system.

If a company is registered in Romania, it must notify the Ukrainian tax authorities and submit annual financial statements reflecting its financial results. Not only the fact of filing is important, but also the quality of the data.

The tax authorities evaluate not the figures themselves, but their consistency with actual activity. Risks arise when:

• Profits are not supported by transactions,
• data differs between countries,
• there is no confirmation of tax payments.

Even a legal business with such discrepancies is perceived as problematic.

 

 

HOW IS THE ADDITIONAL PAYMENT CALCULATED AND WHAT DOES IT DEPEND ON?

The amount of the additional payment in Ukraine cannot be determined by a single formula. It depends on the business structure, tax regime, and expense accounting.

Some expenses may be recognized in Romania but not recognized in Ukraine. This creates a difference in the tax base and directly affects the final amount.

Therefore, relying solely on the lower rates in Romania is a mistake. Not taking into account the Ukrainian portion often leads not to savings, but to an additional burden.

 

THE OFTEN OVERLOOKED RESIDENCY ISSUE

Tax residency deserves special attention. A company is always tied to its country of registration. In the case of Romania, this is the Romanian jurisdiction with its own tax obligations.

However, the business owner is a separate entity. If tax residency is not officially changed, they remain a resident of Ukraine, even if they are actually located in another country.

Physical presence in Romania does not automatically change status. This requires meeting established conditions and formal confirmation.

This is precisely why misunderstandings often arise: a business operates in the EU, taxes are paid there, but obligations in Ukraine remain.

 

 

WHAT GIVES STABLE RESULTS IN PRACTICE

Experience shows that stability comes not from searching for optimal structures, but from a normal, transparent structure.

When a company is properly structured from the start, accounting is seamless, and reporting is synchronized across countries, the system operates predictably.

It's important to understand the tax burden in advance, rather than calculating it after the funds have already been received. This approach helps avoid situations where liabilities arise unexpectedly.

In real-world work, this is always about consistency: a consistent accounting logic, identical data, and no inconsistencies between jurisdictions.

 

HOW TO AVOID COMMON PROBLEMS

In practice, the issue of double taxation is resolved not by complex legal structures, but by discipline in basic processes.

If a company is promptly declared as a CFC, maintains accurate accounting records, and can confirm the taxes paid, everything proceeds without unnecessary questions.

If one of these elements is missing—for example, reporting is missing or there are discrepancies in the data—the risks accumulate. They typically emerge later, when the business is dependent on the tax authorities' decision. Therefore, ongoing support, rather than a one-time inspection, is essential.

 

HOW TO SOLVE THIS ISSUE IN PRACTICE

Double taxation issues are rarely resolved independently without errors, especially if the business is already operating and generating revenue.

It's more efficient to build a proper model from the start: understand the tax burden in both countries, properly register the CFC, synchronize accounting, and eliminate reporting discrepancies.

Our company helps build such a structure for your specific situation: from registration and accounting to full support, taking into account the requirements of Ukraine and Romania.

This not only allows you to avoid additional charges and penalties but also to operate with peace of mind, without the constant risk of a problem arising at the most inopportune moment.

 

 

FREQUENTLY ASKED QUESTIONS

Do I have to pay taxes in both Romania and Ukraine?

No, there is no double payment of the same tax. The company pays taxes in Romania, and only an additional payment for the difference may be incurred in Ukraine.

What happens if I fail to file a CFC?

This is considered a violation. Even if the company pays taxes in Romania, failure to notify and report in Ukraine may result in fines and questions from the tax authorities.

If I live in Romania, do I automatically become a tax resident?

No. Residency alone does not change tax residency. It is determined based on a combination of factors and requires confirmation.

Is it possible to completely avoid taxes in Ukraine?

Only with an official change of tax residency and a properly structured business structure. In other cases, the obligations remain.

Is an additional payment always incurred in Ukraine?

No. It depends on the tax burden in Romania and the business structure. In some cases, there may be no difference.

When do problems most often arise?

When there is no CFC reporting, there are discrepancies in data or a lack of understanding of how the tax burden is calculated between the two countries.